Employment Report In-Depth - Analyst Blog

EDITOR'S NOTE: We are breaking up this analysis of today's BLS report into 2 parts. This is Part 1.

In March, the overall official unemployment rate held steady at 9.7%, even as the economy added 162,000 jobs, including 123,000 in the private sector.

While the headline number fell short of consensus expectations of a gain of around 200,000 jobs added, the shortfall was all in much-lower-than-expected government hiring for the Census. There were only 48,000 people hired to knock on the doors of those who don’t mail back their forms, when most economists were penciling in additions of more than 100,000. This probably means much more of these jobs will be added in April and May.

While those jobs are better than being employed, they are only temporary, and unlike what we normally think of as temp work -- people who work for places like Kelly Services (KELYA) or Manpower (MAN) - they are not an omen of more future permanent work. Thus, while the headline number on job additions was a bit on the disappointing side, as soon as one scratches the surface just a little things look much better.

Behind the Headline Number

Both the February and the January numbers were revised significantly to the better, with only 14,000 jobs lost in February rather than the 36,000 originally reported, while January was revised to a gain of 14,000 jobs rather than the loss of 26,000 reported last month.

The private sector has now added jobs for three months in a row, 123,000 in March, 8,000 in February and 16,000 in January. This is a remarkable turnaround from where we were a year ago when the economy lost a total of 753,000 jobs in a single month, including 744,000 from the private sector.

Impressive Year-Over-Year Comparisons

Over the course of the last year, the economy has lost a total of 2.320 million jobs, including 2.256 million from the private sector. Since the recession started in December 2007, the economy has lost a total of 8.2 million jobs (establishment survey).  

The gains in jobs were pretty widespread by industry. The goods-producing sector added a total of 41,000 jobs, including 17,000 in manufacturing and, surprisingly, 15,000 jobs were added in construction. I suspect the construction gains were due to a snapback from jobs lost in February due to the weather.

The overall increase in goods-producing jobs almost offset the 47,000 that were lost in February, but those jobs have been declining for a very long time,  In January, 30,000 goods-producing jobs were lost. Still, even those numbers are a huge improvement over a year ago, when 326,000 goods-producing jobs were lost in a single month.

This was actually the third month in a row that manufacturing jobs have grown, with the 17,000 gain in March coming on top of gains of 6,000 in February and 22,000 in January. A year ago, 165,000 manufacturing jobs were lost.

The private service sector added 82,000 jobs, on top of gains of 55,000 in February and 46,000 in January. That is a nice turnaround from a year ago when 418,000 private sector service jobs were lost in a single month.

The one industry that managed to continue to grow jobs throughout the downturn, Health Care, saw an acceleration in job growth, gaining 36,700 jobs in March, up from 19,200 in February and 15,700 in January. No evidence there that health care reform is going to lead to job losses in the health care industry, at least not immediately.  

Services Sector

Among the service jobs were 40,200 new temporary jobs, on top of gains of 36,700 in February and 49,100 January. These are especially important, not because they are the best jobs in the world, but because they are a good leading indicator of future permanent employment.

When the economy starts to take a turn for the better and businesses start to have more orders, what is the first thing the boss is going to do? He will have his existing employees work more hours. That is particularly true if he had previously reduced people to part-time status. The business is not going to know if it is just a temporary blip or the start of a sustained upturn.

Once the existing employees are doing all they can, the next step would be to call a temp agency. That way the business can meet the immediate demand, without being locked in to a bigger work force long term.

However, that flexibility comes with a cost. A big chunk of what he is paying for the temporary employee goes not to the temp, but to the temp agency.  Thus when the business feels confident that the recovery is for real, they are going to stop using the temp agency and hire someone of their own (sometimes they simply offer the temp a full-time position, the business can offer the temp more than they were taking home working for the temp agency, and the employer can still lower its costs, in effect splitting the employment agency’s cut with the worker).

Average Work Week Ticks Up

The average work week (a good indicator of that first "work them harder" effect) ticked up to 34.0 hours, from 33.9 hours in February and matching the level of both January and of a year ago. It is highly likely that the snow storms depressed the average work week in February.

Also the average work week was revised up for both January and February by 0.1 hour each. That might not sound like a big deal, but it is. If 138.9 million people each work six minutes a week longer, that’s the equivalent of tens of thousands of additional people working the shorter work week (hard to actually tell how many since the work week is only carried out to one decimal point, so due to rounding the actual increase could have been less than a minute, or more than 10 minutes). Thus, the average workweek has a powerful effect on the total amount of work done, as well as being a very important indicator of where the employment numbers are likely to head in the future.

Government Jobs

Government jobs increased by 39,000, including the addition of 48,000 census workers. That means outside of the Census, government employment actually dropped by 9,000, on a net basis, all of those 9,000 government jobs lost were at the state and local level as those levels of government struggle with declining tax revenues and the inability to borrow for ordinary operations.  There was a 3,500 decline in the number of post office workers, offset by increases elsewhere in the federal government (excluding the Census effect).

The first graph below shows the long-term trends in both the unemployment rate, and the year-over-year percentage change in employment. Note that the year-over-year decline in jobs had fallen as low as -5% and is now less than 2.0%, but that is still worse than the lowest point in the last two recessions.

As the worst of the job losses from a year ago roll off, that number will continue to improve. Also note just how anemic the job growth was following the last recession, with year-over-year job growth just briefly hitting 2.0% at its best point, rather than the over 3.0% job growth that had been achieved in all previous economic expansions (except the very brief recovery between the 1980 and 1981 recessions, and even then year-over-year job growth just about matched best of the most recent expansion).

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.

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